The collapse in North American oil and gas prices will cutmidstream spending by billions of dollars a year through 2035, according to anupdated study from the pipeline industry.
Midstream spending is now projected to average about $26 billion ayear from 2015 to 2035, or $546 billion in total, with a greater focus onnatural gas infrastructure, an ICF International report prepared for the INGAAFoundation said.
A previous iteration of the study forecast the U.S. and Canadawould require an annual average investment for natural gas, crude oil andnatural gas liquids midstream infrastructure of nearly $30 billion per year, or$641 billion total over the 22 years from 2014 to 2035.
"We saw a need to re-examine infrastructure needs inlight of significantly lower commodity prices," INGAA Foundation PresidentDon Santa said in an April 12 statement accompanying the report's release."While E&P activity may dip temporarily because of lower prices, westill will need significant capital investment, particularly in natural gasmidstream infrastructure."
The impending infrastructure became clear not longafter INGAA released the last version of the study. In late 2014, ICFInternational experts already were saying that low prices would likely slow newconstruction and expansion of natural gas pipelines and LNG export terminals inNorth America.
So instead of the normal four-year cycle for the report, theINGAA Foundation moved forward with the update after two years.
"There's probably been, since we've been doing thisstudy, probably no greater period of uncertainty than what we're experiencingright now," Kevin Petak, Vice President of ICF International andco-author, said at an April 12 briefing in Washington, D.C.
In a departure from the past infrastructure-projectionstudies, the latest report includes two scenarios: a "plausiblyoptimistic" high case and a less optimistic low case. Under the former,gas use would rise to 130 Bcf/d by 2035, while under the latter, gas demandgrows only to 110 Bcf/d, with the greatest demand disparity emerging in thepower sector.
Natural gas infrastructure is expected to comprise more than60% of upcoming build-out, and total gas-related capital spending is slated torange between $290 billion and $376 billion — with a midpoint of roughly $333billion — over 2015-2035, according to the report. This compares to the 2014estimate of $313.1 billion devoted to gas CapEx.
But for oil infrastructure, the April 12 study projectedspending of between $137 billion and $190 billion, and for natural gas liquids,the report estimated spending would fall between $43 billion and $55 billion.By contrast, the 2014 study projected $271.8 billion for crude oilinfrastructure investment and $56 billion total of investment NGL infrastructureand over the study period.
On the whole, the April 12 report projects that midstreaminvestment would add between $655 billion and $861 billion of value to the U.S.and Canadian economies and translate into 323,000 to 425,000 jobs per year.Comparatively, the 2014 report estimated that midstream spending would addabout $885 billion to U.S. and Canadian economies and create more than 432,000jobs.
In addition to the infrastructure build-out spending, theINGAA report also projected $24 billion in CapEx to address incrementalintegrity management needs and sector emissions over the next 20 years.
More horsepower tomove more gas
Natural gas-related CapEx makes up the majority of projectedspending, and the build-out will move in phases. Many projects are alreadyunder construction, leading to most new takeaway capacity coming online by2020. The report envisions development to slow beyond 2020 and expectsmidstream operators to focus more on new compression, and less on new pipelinesin the later years.
"So we continue to see some robust build out,particularly over the next couple years, and then slowing activity [after2020]," Petak said. "What we're seeing is perhaps less miles of pipebeing built going forward but more compression associated with the projects."
Over the 21-year time frame of the study, an additional 44.8Bcf/d to 58.2 Bcf/d of gas pipeline capacity is expected to be added in theU.S. and Canada. Most of the capacity is added in the Northeast, the Southwestand Canada.
Between 18,000 miles and 29,000 miles of new gastransmission pipeline is expected to be built from 2015 to 2035, which willtake between $90 billion and $140 billion. "While these expenditures aresignificant, they are less on a per-annum basis than recent expenditures havebeen over the past five years," Petak said.
The report stated that an estimated 4.3 million to 6.2million horsepower of compression for gas transmission lines will be developedover the 21 years, while compression needed for gas gathering ranges from 7.6million to 9.7 million horsepower.
"There's a lot of existing pipeline capacity out of theMarcellus and Utica, and some of the projects going forward are those pipesbeing repurposed," Petak said, adding that repurposed pipelines would workto redirect natural gas toward areas of demand.
Investment in pipelines, including gathering andtransmission line, compression and pumping, is estimated to range from $183billion to $282 billion.